Why does Dominion Power support EPA’s Clean Power Plan?

When utility giant Dominion Resources Inc. filed a brief in support of the federal Clean Power Plan last week, a lot of people were caught off guard. Hadn’t Dominion CEO Tom Farrell said as recently as January that it would cost consumers billions of dollars? Why, then, is the utility perfectly okay with it now?

Well, first, because the mere threat of the plan has already cost Virginia consumers a cool billion, but it’s all going straight into Dominion’s pockets. What’s not to like? Otherwise, as applied to the Commonwealth, the Clean Power Plan itself is a creampuff that could even save money for ratepayers. Farrell’s claim that it will cost billions, made at a Virginia Chamber of Commerce-sponsored conference, seems to have been a case either of pandering to his conservative audience, or of wishful thinking. (Looking at you, North Anna 3!)

And second, Dominion’s amicus brief indicates its satisfaction with the way it thinks Virginia will implement the Clean Power Plan. Dominion has been lobbying the Department of Environmental Quality to adopt a state implementation plan allowing for unlimited construction of new natural gas plants (and perhaps that new nuclear plant), which happens to be Dominion’s business plan.

If you can get everything you want and still look like a green, progressive company, why wouldn’t you support the Clean Power Plan?

The only risk here is that it makes Virginia Republicans look like idiots. Their number one priority this legislative session was stopping the Clean Power Plan, largely on the grounds of cost. They ignored the hard numbers showing the plan essentially gives Virginia a pass, and instead relied on propaganda from fossil fuel-backed organizations like Americans for Prosperity and, crucially, the word of Dominion Power lobbyists.

Sure, it wasn’t just Republicans; a lot of Virginia Democrats swallowed Dominion’s argument during the 2015 legislative session that the Clean Power Plan would be so expensive for consumers that the General Assembly had to pass a bill—the notorious SB 1349—freezing electricity rates through the end of the decade so they would not skyrocket.

SB 1349 suspended the ability of regulators at the State Corporation Commission to review Dominion’s earnings. One outraged commissioner, Judge Dimitri, calculated that the effect of this “rate freeze” would be to allow Dominion to pocket as much as a billion dollars in excess earnings, money that ratepayers would otherwise have received in refunds or credits.

Environmental groups had opposed the gas plant, arguing approval is premature since we don’t know what Virginia’s Clean Power Plan will look like, and that Dominion hadn’t properly considered other options.

It gets worse. Building more of its own gas plants allows Dominion to terminate contracts to buy power from other generators. In theory, this should represent an offsetting savings for consumers. But as Judge Dimitri explained in a concurrence, SB 1349 means Dominion doesn’t have to subtract this savings from the bill it hands those ratepayers.[2]

As Sierra Club Virginia Chapter Director Glen Besa noted, “The State Corporation Commission decision today proves that there really is no electricity rate freeze. The SCC just allowed Dominion to raise our electricity rates and increase carbon pollution for a power plant we don’t need.”

Now, let’s have a look at what is actually in Dominion’s Clean Power Plan brief. In part, it is a defense of EPA’s holistic approach to regulating generation and a rejection of the conservative claim that the agency should not be allowed to regulate “outside the fence line” of individual plants. Adopting the conservative view, argues Dominion, could lead to widespread, expensive coal plant closures.

But mostly, Dominion likes the Clean Power Plan because the company feels well positioned to take advantage of it. The brief makes this argument with classic corporate understatement:

Dominion believes that, if key compliance flexibilities are maintained in the Rule, states adopt reasonable implementation plans, and government permitting and regulatory authorities efficiently process permit applications and perform regulatory oversight required to facilitate the timely development of needed gas pipeline and electric transmission infrastructure, then compliance is feasible for power plants subject to the Rule.

What Dominion means by “reasonable implementation plans” requires no guesswork. Virginia clean energy advocates want a mass-based state implementation plan that includes new sources, so power plant CO2 emissions from Virginia don’t actually increase under the Clean Power Plan. You or I might think that reasonable, given the climate crisis and EPA’s carbon-cutting goals. But that’s not what Dominion means by “reasonable.”

Dominion’s business plan, calling for over 9,000 megawatts of new natural gas generation, would increase CO2 emissions by 60%. To Dominion, a 60% increase in CO2 must therefore be reasonable. Anything that hinders Dominion’s plans is not reasonable. QED.

“Needed gas pipeline . . . infrastructure” is no puzzle either. Dominion wants approval of its massive Atlantic Coast Pipeline. That pipeline, and more, will be needed to feed the gaping maws of all those gas plants. Conversely, Dominion, having gone big into the natural gas transmission business, needs to build gas generating plants to ensure demand for its pipelines.

Dominion is not the only electric utility betting big on natural gas. Southern Company and Duke Energy have also recently spent billions to acquire natural gas transmission and distribution companies. Moody’s is criticizing these moves because of the debt incurred. From a climate perspective, though, the bigger problem is that this commitment to natural gas comes right at the time when scientists and regulators are sounding the alarm about methane leakage.

There is surely some irony that Dominion, while defending the EPA’s plan to address climate change, is doing its level best to increase the greenhouse gas emissions that drive it.

Indeed, anyone reading Dominion’s brief and looking for an indication that Dominion supports the Clean Power Plan because it believes the utility sector needs to respond to the climate crisis would be sadly disappointed.

On the other hand, the brief positively sings the praises of “market-based measures” for producing the lowest possible costs. This is a little hard to take, coming from a monopoly that uses its political and economic clout to keep out competition and reap excessive profits through legislation like SB 1349, and which intends to use its captive ratepayers to hedge the risks of its big move into natural gas transmission.

“I would find that SB 1349 cannot impact the Commission’s authority in this matter because it violates the plain language of Article IX, Section 2, of the Constitution of Virginia, for the reasons set forth in my separate opinion in Case No. PUE-2015-00027.

“Indeed, the instant case further illustrates how SB 1349 fixes base rates as discussed in that separate opinion. The evidence in this case shows that Dominion plans to allow certain NUG contracts, currently providing power to customers, to expire while base rates are frozen by SB 1349. The capacity costs associated with these contracts, however, are currently included in those base rates. Thus, as explained by Consumer Counsel, this means that “the Company’s base rates will remain inflated” because Dominion (i) will no longer be paying these NUG capacity costs, but (ii) will continue to recover such costs from its customers since base rates are frozen under SB 1349. Based on Dominion’s cost estimates, between now and the end of 2019, it will have recovered over $243 million from its customers for NUG capacity costs that the Company no longer incurs. While other costs and revenues are likely to change up and down during this period and would not be reflected in base rate changes precluded by SB 1349, these NUG costs are known, major cost reductions that will not be passed along to customers.” [Footnotes omitted.]